Robust Multifamily Absorption in the Inland Empire Offsets Impact of Elevated Supply

Despite increased pressures on a key segment of the local economy, multifamily property fundamentals in the Inland Empire have remained resilient. Legislation passed in the second half of last year may hinder the development of new warehouse and distribution facilities throughout the state, potentially slowing one of the Inland Empire’s key sources of long-term growth. Warehousing, transportation, and logistics employment may be impacted by the legislation, even as the sector is already facing headwinds coming from the restructuring of U.S. global trade policy. Even so, recent renter demand for apartments has been elevated, and leasing activity has nearly kept pace with recent supply growth. Net absorption has totaled approximately 2,700 units during the past 12 months, with the Southwest Riverside County/Temecula submarket leading the region. As a result, multifamily vacancy stood at 4.5% at the end of the second quarter, just 10 basis points higher than at the beginning of the year. The ongoing absorption has also supported rent growth, with rents up 2.3% year over year.

Sales volume in the Inland Empire multifamily market remains limited, with the number of transactions still trailing below the quarterly five-year average. Despite a shift toward older property vintages, pricing has trended higher in recent months. The median sale price year to date is $310,350 per unit, up slightly from 2024. During the second quarter, all recorded sales involved properties built in the 1980s, following a first quarter where these assets made up two-thirds of activity. In contrast, most 2023 transactions involved properties constructed in the 1990s and 2000s. The recent rise in pricing reflects a concentration of deals in higher-rent submarkets such as Greater Ontario/Rancho Cucamonga. Cap rates have remained stable, averaging around 5.0%.

Looking ahead

Operating conditions in the Inland Empire multifamily market are expected to remain healthy through year-end despite elevated deliveries. Around 4,000 units are projected to come online in 2025, adding to the 3,900 units that were completed in 2024. Demand is expected to remain elevated, helping to mitigate the impact of inventory growth as rents continue rising and vacancy increases remain modest. Economic growth in the Inland Empire has slowed due to challenges faced by the region’s key employment sector: warehousing, transportation and logistics. This sector faces challenges at both the state and federal levels, making long-term forecasts more difficult. However, as global trade relations restructure, the Inland Empire’s multifamily housing market fundamentals remain well-positioned for renewed growth once trading partners establish a new balance.

Activity in the Inland Empire multifamily investment market is expected to accelerate in the second half of 2025, though annual totals will likely remain below historical averages. Property performance is forecast to remain stable, supporting a positive long-term outlook for the region. Investors who have been waiting for a more favorable financing environment may return to the market as new opportunities potentially emerge in the second half. The high volume of new units is increasing competition among landlords but may also create attractive investment prospects as those properties stabilize. While vacancy rates are elevated, they remain manageable, with absorption helping offset recent inventory gains. Conditions should improve further as the construction pipeline normalizes by 2027. Submarkets along trade corridors from Los Angeles have recorded the highest sales activity in recent years and are expected to continue leading through 2025 and 2026.

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